Despite Call to Action, Speech Fails to Move Reform Ahead

WASHINGTON — Despite President Obama's urgent plea to pass regulatory reform legislation, its outlook remained muddy following the State of the Union address.

In interviews after the speech, senators were split on whether the president's words helped or hurt the reform effort, and appeared as divided now on key parts of the legislation as they were last year despite two months of bipartisan talks.

Even the strategy for moving forward remained unclear, with Democrats weighing their priorities and gauging whether they could attract GOP support.

"Since we've come back after the break, we still have not made a significant amount of progress," said Sen. Mike Crapo, R-Idado, a member of the Senate Banking Committee.

Democrats were more optimistic, but some raised concerns that Republicans may not commit to a bill.

"The president's pretty strong on financial reform, but the Republicans looked totally unenthusiastic when it came time to take on some of their banking interests," said Sen. Sherrod Brown, D-Ohio, also a member of the Senate Banking Committee.

If they are mentioned at all in State of the Union addresses, financial services issues are typically relegated to second-tier status. But the president devoted plenty of attention to banks during his address Wednesday, listing "serious financial reform" among his most pressing priorities.

"I am not interested in punishing banks, I'm interested in protecting our economy," he said.

While praising the House for passing a reform bill last year, Obama said bank lobbyists were "already trying to kill it," and warned that if final legislation is weak, he will veto it.

"We cannot let them win this fight," he said. "If the bill that ends up on my desk does not meet the test of real reform, I will send it back."

He also plugged two new ideas: a 15-basis-point tax on large banks and curbs on their growth and risk-taking.

But Crapo said the new proposals merely make passing a reform bill harder.

It "not only complicated things, but it has made them more difficult, simply because increasing taxes was not a part of reform," he said. "I mean, we were hoping that the focus on regulatory reform would be the kind of changes that would really change our system, increase the safety and soundness of the system."

In an interview Thursday, Sen. Richard Shelby, the banking panel's chief Republican, said Obama's speech, particularly the veto threat, was counterproductive.

"I thought he threatened to veto anything that we do," Shelby said. "At least that's what I heard. I didn't think that was helpful."

Before the president's speech, the Alabama Republican pulled Treasury Secretary Tim Geithner aside to say he wanted to discuss reform and the administration's intentions.

"I'd like to talk to them and see if they are working in good faith with us. If they do, we will come up with a substantive bill," Shelby said in the interview. "If they politicize it, we won't."

Shelby, however, has not given up on a bipartisan bill, and said negotiations are ongoing with Senate Banking Committee Chairman Chris Dodd.

"I believe that the Democrats want a meaningful substantive regulatory reform bill for financial institutions and want to do it right and keep politics out of it as much as we can," Shelby said. "We are working in good faith. We are talking about concepts, but nothing has crystallized yet."

Shelby insisted he will not get behind a tax on large banks.

"I would never support a tax. … Banks, most of them, not all, have paid" Troubled Asset Relief Program "money back," Shelby said. "If you have a bank tax, you are going to take money out of the banks and then you … don't have money to lend."

Obama's speech was also notable for what it did not discuss.

Unlike last year, there was no mention of the administration's plan to prevent foreclosures — a plan that has largely failed to result in significant loan modifications. Instead, Obama said only that the administration was focused on stabilizing home prices, and would "step up refinancing so that homeowners can move into more affordable mortgages."

The president also avoided any mention of a proposed Consumer Financial Protection Agency. His decision not to highlight the consumer agency was not lost on lawmakers, particularly Republicans who adamantly oppose the idea.

"We're firm," said Sen. Robert Bennett, a Utah Republican who sits on Senate Banking. "A separate consumer protection agency is a nonstarter."

Some said Obama's decision not to mention the agency may help Democrats reach a compromise on the issue.

"It's good that he didn't draw a line in the sand there," Crapo said. "That particular nonreference will make it easier."

Not everyone is willing to give up, however.

"I'm going to fight for it," said Brown, who insisted, "It's very important to" Obama.

For his part, Dodd told reporters Thursday that he is still working with Shelby and other panel members to find a bipartisan bill.

"We continue working," said the Connecticut Democrat. "For about three months now we have been working very hard — all members of the Banking Committee have been — to develop a consensus bill. We are still working hard but we have to finish that conversation fairly quickly now."

When pressed on when he would hold a vote on the bill, Dodd declined to commit, saying only that a committee vote would come "fairly soon" and "some time in the near future."

Dodd brushed aside arguments that the administration's latest proposals might damage the ability of Republicans and Democrats to work together.

"Those are just speeches," he said.

Other lawmakers agreed a deal is still within reach.

"I think there is a strong possibility for a good financial regulatory bill with strong bipartisan support," said Sen. Evan Bayh, D-Ind.

"It won't be easy, but I think there is a good chance."

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